Supercharge your Email Segmentation Strategies for your Best Customers using RFM Analysis

How would you call a world where everyone is getting the same reward, no matter how much effort they made?

A world where everyone is treated equally, even if some show up daily while others don’t even do the bare minimum? 

It doesn’t sound like a fair world, doesn’t it?

Then why would you treat your customers this way, even if some are die-hard fans while others are mere bargain hunters?

In today’s post, we’ll show you how to solve this dilemma through marketing segmentation. Not only that, but we’ll also show you how to decide which customers deserve your attention and to what degree. 

We’ll help you use customers’ purchase history to understand who is a priority in your customer base and who has to become worthy of your attention. 

And we’ll empower you to take back your resources and stop wasting them on efforts that don’t deliver revenue, loyalty, or results. 

All these can be accomplished by incorporating RFM segmentation into your email marketing strategies. 

Let’s go!

What Is Email Segmentation?

Email Segmentation divides your total email subscribers into smaller segments using agreed-upon criteria. This criterion can mean anything: from demographic data to the customer journey stage and the average order value of your customers. 

Email Segmentation is used by marketers to provide more relevant content and offers to the customer base. 

It’s widely known that “one size fits all” strategies aren’t effective in marketing.

A good strategist will segment your emails to cater to each unique email list and that list’s independent interests.

For example, a retailer might segment his email list, taking into account items bought recently. Let’s say a big part of the customer base bought winter clothes. In this case, this group might get email offers for complementary items (such as hats, gloves, and boots). 

For the sake of the argument, let’s assume that another customer segment bought summer clothes. In this case, this segment will get emails offering discounts for summer-related articles – sunglasses, beach towels, and swimming suits. 

Rather than sending one mass email blast to all customers, segmenting lists will help this retailer target specific sub-groups with relevant offers – increasing his chances of earning more value from his customers.

Types of Email Segmentation

As far as marketing segmentation strategies go, you have many options. Here is our pick of segmentation ideas for best-performing targeted campaigns in digital marketing.

• Email Segmentation by Location

This is the most straightforward E-commerce clients segmentation method used by most retail & eComm companies. 

Segmenting your contacts by their location allows you to target them for special events (such as Bank Holidays) or run one-time offers with your shipping partners. 

• Email Segmentation by Job Title 

Our jobs are a big part of who we are – the language we’re using, our interests, and our desires. Grouping your subscribers by job title allows you to send relevant offers, meet the specific requirements, and touch the specific trigger points of the Job Title.

• Email Segmentation by Customer Journey Stage 

How much time does a user spend on a page? How many pages do they typically browse during a visit? 

This information allows you to group people into different stages of the Customer Journey, then create nurturing sequences, pushing them through the steps. 

For example, people in the consideration stage will browse through your website and carefully read product descriptions. 

These people need educational content to get more information and reach their decisions. Get their email addresses through lead magnets and send them free, quality, and relevant content to help your conversion rates.

On the other hand, you have users in the retention stage who only need a little information. Instead, they need incentives to return to your store for repeat purchases.

You can also look at your shopping cart abandonment rate and segment your audiences based on cart abandonment. You can increase sales by giving cart abandoners an extra incentive to go through with the purchase.

• Email Segmentation by RFM Analysis

Arguably the best email segmentation strategy in business is RFM segmentation. RFM stands for:

• Recency
• Frequency 
• Monetary Value

RFM segmentation uses behavioral data and rates each customer from 1 to 5, attributed to each variable.

Customers are then segmented into subgroups that share the same characteristics in terms of purchase behavior. 

RFM segmentation allows us to develop more effective, creative, and customized tactics to approach each segment via email (and other channels).

The case for RFM Segmentation

Yes, the customer is King in eCommerce, but let’s not forget that not all customers are created equal. 

Some are bargain hunters, eating up your resources without bringing in revenue. Others are die-hard fans who treat you as their first option and recommend you to their communities. 

To identify the variations inside your customer base, you need to know the following:

• how recently a customer made a purchase
• how often do they make purchases
• how much they spend 

These insights into the customer purchase history allow you to prioritize and target your most valuable customers, leading to increased customer loyalty and Lifetime Value. 

Moreover, understanding your RFM groups allows you to create a more effective (= relevant) email strategy, resulting in higher open and conversion rates. 

Ultimately, RFM segmentation and analysis empower you to understand better who your best customers are and increase the engagement level, driving sustainable revenue growth.

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How to do RFM Segmentation?

RFM analysis is a technique for segmenting client behavior based on your first-party data.

As stated above, RFM segmentation takes into account 3 main variables used to describe your customers’ behaviors:

• Recency – how recently a customer made a purchase (how much time has passed since the last purchase)
• Frequency – how frequently does the customer buy (how much time passes between repeat purchases)
• Monetary value – how much money does the customer spend on his purchases (how much revenue does the customer bring in)

Each customer gets a score from 1 to 5 (5 being the highest) for each of the three variables. Customers then get divided into purchase-behaviour sub-groups according to their score.

You can use these three RFM criteria to forecast if a consumer will likely (or unlikely) do business with your company again.

At the same time, RFM segmentation allows your marketing teams to orchestrate more effective, creative, and customized strategies to approach each segment (via email, ads, or other channels).

How to Identify Your Best Customers?

After each customer is assigned the corresponding score for the RFM variables, your customer base gets divided into tiered groups according to their scores. 

The score combination will segment your customer base into eleven sub-groups belonging to four master categories (or types of customers). 

Note – if your customer base isn’t that large, you should cluster the 11 sub-groups together. 

Here are the four main categories your customers will fall into:

Type 1 – Power Customers

Best customers, power customers, or top customers have the highest scores. They’re most likely to buy again, bring other people on board, and generate more recurring revenue. 

A power customer will resemble a buyer persona the most. However, we’re strongly suggesting you take an Ideal Customer Profile approach. 

According to their scores, power customers can be further divided into three categories:

• Soulmates (Scores 5-5-5): pure gold, highest scores on all criteria: repeat customers with high monetary value – the people you want to retain.
• Lovers (Scores 4/5 – 3/5 – 3/5): recent buyers, moderate to high frequency and monetary value – customers who bought recently, relatively frequently, and you can see potential – they need a little push to become soulmates.
• New passion (5 – 1- 4/5 ): recent buyers, 1-2 orders (they still need to get the chance to return), moderate to high AOV – consumers with great potential who need a fantastic onboarding experience to become loyal customers.

Type 2 – Active Customers 

• Potential Lovers (5-1-5): the consumers placed orders with high AOV, but they don’t buy as frequently as you would like. 
• Flirting (4-1-4): These customers are a former new passion; however, there’s a drop in recency.
• Platonic Friend (3/4 – 3 – 3/4): active buyers, their AOV is low to moderate, and frequency isn’t as great either. 
• Apprentice (4-1-1): recent buyers, 1-3 orders, low monetary value – they can move into a better category if incentivized enough.

Type 3 – At-Risk Customers 

• About to dump you (2/3 – 1/5 – 1/5): these customers are about to churn. According to their frequency and monetary value scores in the past, you can decide if you want to trigger a reactivation campaign or not.

Type 4 – Lost Customers

• Ex-Lovers (1- 5- 5): These customers have stopped buying from you, but they had high frequency and monetary value in the past. 
• Don Juan (1-1-5): This segment is for customers who bought only once a long time ago, but their AOV was high. 
• Breakup (1-2-2): Breakups are inactive customers who used to purchase frequently but with low-value orders. 

Now that you understand more about customer segments is easy to understand who your most important customers are: the power customers segment.

Power customers are more inclined to make repeat purchases, bringing in a significant percentage of your revenue. 

In fact, after running the data on thousands of eCommerce shops, we realized that in most cases, 30% of the revenue is generated by returning customers – in the power customer category.

If these power customers slip into a lower category (their frequency drops), you can reactivate them. If they’re active, you need to pay extra attention and ensure you’re not giving them a reason to churn.

How to Approach Power Customers by email?

So you want to use segmented email marketing strategies for reactivation or retention and increase the number of subscribers engaging with your emails. In that case, you can try some of the strategies we’re creating for Omniconvert’s clients.

Flows for Soulmates 

• Thank you message

To develop a deeper connection and build trust with your soulmates, you should trigger “thank you emails” that engage them more genuinely and personally. 

• Feedback Flows 

Show your soulmates how much you care about them and how important their input is by regularly asking for feedback. Then act on the feedback to improve customers’ experience and increase satisfaction and loyalty. 

• Review Flows

Take advantage of this group’s high level of customer satisfaction and ask for their public reviews and recommendations. Positive social proof proudly displayed on your website and Social Media builds trust and credibility among prospects.  

Flows for Lovers 

• Social Proof flows

Lovers are power customers who aren’t buying as frequently as you’d like them to. Therefore, reassuring them and showing them that you deliver on your promise is a good idea. 

Send them client testimonials, social media reviews, or customer success stories. Seeing that other people had excellent results with your product might persuade Lovers and increase their trust. 

• Curated recommendations

Provide personalized recommendations that match their interests and incentivize them to spend more in your store. You can offer volume-based discounts or special offers on product bundles or tease them about the unique perks of becoming a Soulmate. 

Flows for New Passions

• Onboarding Flows

To create that “love at first purchase” vibe, trigger a unique onboarding flow. Introduce the brand and the value of your offering, and provide tips on how to get the most out of your products.

• Buyer’s remorse Flows

Reassure the customers that they made the right decision in becoming your customer. Highlight your product’s benefits, share customer success stories, and offer a guarantee or return/ exchange policy.

Loyalty and Exclusive offers

Loyalty and exclusive offers are how you reward and retain your customers. In a customer-oriented business, loyal customers should always know how much you value and appreciate their presence in your life.

This is a relationship you don’t want to lose. Just as in life, you want to keep close to the people who value, like, and support you. 

In business, this closeness translates into an email segmentation strategy that includes flows created solely to reward your customers.

• Exclusive benefits and perks

Create a list of unique benefits for the select customers who fall into the “power customer” category. Offer discounts for high-priced products, free shipping, or anniversary gifts to show appreciation.

• “Secret” sales

You can create better deals for your best customers and limit their access. Be very clear in your messaging, explaining how and why these offers are limited to the general public. If creating deals doesn’t make sense financially, you can offer personalized service or assistance.

• Early Access

People don’t have the patience to wait. And if they love your products, they’d be grateful for the opportunity of buying them before they become widely available. 

The first pick of the products may be particularly appealing for limited-ed or high-demand items.

• Special discounts

This one works for Lovers and New Passions alike. Use a special discount to incentivize new customers with high potential to place a second purchase so that they can get accustomed to the brand. 

These ideas come from our eCommerce Strategists, straight from the flows we’re creating for our customers. The more insights we get about customer data, the more precise the flows are. 
If you want a different team by your side to implement these ideas with surgical precision, or come up with unique flows specific to your goals, let’s talk. 

Wrap-up

When you look at RFM analysis as a source of truth, you start seeing patterns inside your customer base. You realize that some customers have been costing you time and money without bringing in revenue. 

Others, on the other hand, are ideal customers who bring revenue and recommendations. So it’s worth going the extra mile for them. 

Segmenting your customers is ideal to avoid focusing too much on the wrong type of customer and create personalized, unique experiences for your best customers instead.

The only thing left to do is implement the analysis and set up your email flows – with messages and offers tailored to each segment. 

Give it a try and see the difference it can make for your business!

Frequently Asked Questions about RFM Analysis and eMail Segmentation